Johnson’s complaint said that Hartford depreciated the cost of numerous items not subject to depreciation, including baseboards, cement, drywall, insulation, marble, lath and plaster, plumbing and ornamental iron among others, often by sizable amounts. The replacement cost for plumbing, for instance, was reduced by more than 42%, while the replacement cost for marble was written down by 80%.

Reduced sales tax component

The suit also noted that Hartford reduced the sales tax component by the same amount as the depreciation on the items themselves.

Hartford’s methodology resulted in “lowballing” claims to its insureds, it said.

Hartford moved to deny class certification and also sought summary judgment, but in a May 22 order Judge William Orrick shot down both requests.

Hartford had argued that it paid Johnson more than he actually spent on repairs, but Orrick wrote that the policy language indicated that “the total amount recoverable under the policy is not limited to the amount actually spent on repairs.”

In any case, he noted, Hartford’s insureds “may decide, for a variety of reasons, to take the [actual replacement value] to which they are entitled and not rebuild all of the structure, as Johnson has apparently done in not rebuilding the third floor.”

California’s insurance code & replacement value

“The measure of damages is not the difference between the amount of money spent on repairs and what was paid out, but rather the difference between what Hartford paid out and what it should have paid out,” Orrick wrote.

Regarding the sales tax, he wrote, such a tax “constitutes a non-tangible item not subject to deduction at all” under the policy or under California’s insurance code.

Hartford’s arguments that the potential class members lack commonality under federal rules also failed, he said, since all of their cases turn on the issue of whether Hartford is prohibited from depreciating certain structural items and the sales tax on them.

Attorney Ivo Labar of San Francisco’s Kerr & Wagstaffe, who represents Johnson with colleague Michael von Loewenfeldt, said that while the instant litigation only concerns Hartford clients in California, many other states’ insurance laws mirror the California code and that litigation could be filed elsewhere.

“The big takeaway is that national insurance companies need to pay attention to the laws that are in effect in their states and not try to save money at the expense of their insureds,” said Labar.

Similar cases settled

Labar said that some similar cases in California against other insurers, including Farmers, State Farm and AAA, have settled within the past few years.

Hartford’s attorneys, Christopher Frost and Michael Mulvany of Birmingham, Alabama’s Maynard, Cooper & Gale, referred queries to the insurer’s media representatives, who did not immediately respond to messages.

Contact Law.com writer Greg Land at [email protected].